The United States heaped more pressure on HSBC Holdings, Europe's second-largest bank, on Wednesday with an indictment that laid out the role of two unnamed senior HSBC executives in providing tax evasion services to Americans born in India.
Federal prosecutors in Milwaukee charged an Indian-American client of HSBC with evading U.S. taxes through the global bank's India operations and conspiracy to defraud the United States. Prosecutors also identified two New York-based bankers, whom it did not name, as unindicted co-conspirators.
The client, Arvind Ahuja, a board-certified neurosurgeon in Greendale, Wisconsin, was charged in a superseding indictment.
Ahuja was originally indicted in June for tax fraud involving more than $8.7 million in an Indian branch of HSBC.
Court papers say that over 2006 through 2009, Ahuja failed to report to the tax-collecting U.S. Internal Revenue Service more than $1.2 million in interest income he earned from the account, as well as to disclose the account's existence to the IRS, as required by U.S. law.
The superseding indictment signals a ramping up of pressure on HSBC and could lead to charges against two unnamed bankers listed in the new filing, based on past procedures involving Credit Suisse, Switzerland's second-largest bank.
"It is clear from the new indictment that the government is gearing up to charge certain HSBC India bankers for their involvement in the scheme," said Jeffrey Neiman, a former federal prosecutor in Florida who worked on tax evasion cases involving UBS AG, the big Swiss bank.
"These were not bankers living and working abroad. These were bankers living and working in New York and who, according to the indictment, were actively soliciting US clients to conceal undeclared assets overseas," he said.
HSBC spokesman Clinton Riley said, "HSBC does not condone tax evasion and fully supports U.S. efforts to promote appropriate payment of taxes by U.S. taxpayers."
He added that "HSBC does not comment on discussions we may or may not be having with authorities on this or other matters. In all cases, HSBC cooperates fully with requests from U.S. authorities and engages to resolve matters."
The indictment is part of a broadening U.S. investigation into Swiss and Swiss-style banks that sell offshore private banking services that enable American clients to hide income offshore and evade U.S. taxes.
The probe has widened to include Israel and India. In 2010, the Justice Department mailed "target" letters to around 50 Indian-Americans with offshore bank accounts, telling them they were under scrutiny for suspected offshore tax evasion through accounts in India.
HSBC is based in London but has Swiss-style private banking services around the world.
In April, the U.S. Justice Department asked a federal court for permission to force the bank to turn over the names of wealthy Indian-American clients suspected of evading taxes through offshore accounts at the bank's operations in India.
The superseding indictment pinpoints two HSBC bankers as Banker No. 1 and Banker No. 2.
Banker No. 1 was identified as vice president of NRI Services, North America. NRI Services - which stands for Non Resident Indian - is a unit of HSBC India that operates in New York and Fremont, Calif., according to court papers.
The unit targets wealthy Indian-Americans for offshore private banking services, and serves over 160,000 people of Indian origin living outside of India.
Banker No. 2 was identified as an assistant vice president of NRI. Both bankers worked in New York, according to court papers, which cited email correspondence in which Banker No. 2 called Ahuja "one of our largest NRI client."
The existence of HSBC's NRI operations emerged in January, when prosecutors indicted Vaibhav Dahake, an India-born naturalized U.S. citizen, on similar charges of evading taxes through HSBC's India operations. The bank was not named in his indictment. It was identified by sources briefed on the matter as HSBC.
The superseding indictment details what it says was HSBC's use of methods to allow Ahuja to escape detection by U.S. tax authorities. The HSBC bankers procured credit and debit cards for Ahuja to use via HSBC affiliates in India and the British tax haven of Jersey. The cards allowed Ahuja to use his funds without disclosing their existence to U.S. authorities, in part to invest in real estate in India.
The bankers also mailed account correspondence to an address in New Delhi, rather than to his Wisconsin address. Ahuja was provided an HSBC checkbook that did not have the NRI name on it.
An action similar to the Justice Department's April summons on HSBC was filed against Swiss banking giant UBS in 2009, after the bank entered into a deferred-prosecution agreement with U.S. authorities and paid a $780 million fine over its private banking operations that fueled tax evasion by wealthy American clients.
The action, a broad summons known as a John Doe summons, sought to force UBS to disclose the identities of 52,000 American clients but was later dropped after UBS agreed to turn over 4,450 client names.
(Reporting by Lynnley Browning in Fairfield, Conn.; editing by Howard Goller, Kevin Drawbaugh and Tim Dobbyn)